Lessons learnt on Micro-Finance

Financial services should not been given by non-financial projects or organisations

• Credits by non-financial projects or organisations (e.g. BDS providers) will cause a conflict between business advisory and credit control.

• Moreover, non-financial organisations do not have the necessary instruments to assure the regular credit repayment.

• Financial services of non financial organisations with non-commercial credit conditions can undermine the efforts of the young national micro-finance system.

• If non-financial organisations have enough financial resources, they may rather support micro-finance institutions by allocation of credit guarantee lines, in order to anable them to give services for specific target groups.

Micro-credits are more cost intensive
Micro-credits have higher adminstration costs as big loans of commercial banks. So interest rates of micro-finance are normally higher in order to cover the administration costs.

Credit application should depend on a good market position or potential of the business
Businesses which do not have a good market position or potential, normally cannot use the credit in a profitable manner, with the exception of credit determined to market activities.

Credit application should be prepared by a detailed project or business plan
Financial support should be prepared by non-financial assistance in order to analysis the feasability of the project.

The purpose of the credit should be specified in the credit contract
A detailed credit contract should avoid the alienation of the credit purpose.

The follow-up of the business should be assured
The follow-up should help the business to avoid mismanagement, assure the effective use of the credit and the regular repayment.

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